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2014 (12) TMI 558 - AT - Income TaxInvocation of section 40(a)(i) - Deductability of interest/commission paid to HO/overseas branches – Held that:- As decided in assessee’s own case and following the decision in Sumitomo Mitsui Banking Corporation Versus Deputy Director of Income-tax, (IT), Rg. 2(1), Mumbai [2012 (4) TMI 80 - ITAT MUMBAI] - taxing the interest income received from HO/Overseas branches, the interest paid by the assessee to its HO/Overseas branches would become deductible - the amount of interest disallowed has been wrongly taken in this ground - Decided in favour of assessee. Profit arising on revaluation of unmatured forward forex contracts taxed – Held that:- Assessee rightly submitted that the loss on revaluation was disallowed by the AO, in the previous AY but has been allowed by the tribunal therefore on the same analogy the profit arising on revaluation has to be taxed - the loss on revaluation of unmatured forward forex contracts has been allowed by this tribunal in the earlier years, thus, then the natural corollary would be that the profit arising on revaluation of the unmatured forward forex contract is liable to be taxed as income – Decided against revenue. Disallowance u/s 14A on interest expenses – Expenses paid on FCNR(B) in relation to the exempt income on balance of Nostro Accounts – Held that:- As decided in assessee’s own case the assessment order needs to be approved in preference over the view taken by the learned CIT(A) - CIT(A) made enhancement of income to the tune of ₹ 32.79 crore by computing disallowance under section 14A in respect of such interest income on NOSTRO account, which was held by him to be not chargeable to tax as against the AO’s decision as to the chargeability of this amount - once the income itself is chargeable to tax, there can be no question of computing any disallowance u/s 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of the total income – no disallowance u/s 14A can be made – Decided in favour of assessee. Provisions for non-performing assets u/s 37(1) disallowed – Held that:- As decided in assessee’s own case, AO has disallowed the claim of the assessee because it was found as a provision for NPA - it is settle proposition that the it cannot be allowed - when the provision is for NPA and not for Bad debts then as held in Southern Technology Ltd. Vs. JCIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA] provision for NPA is not an allowable claim – decided against assessee. Netting off interest received u/s 244A – Held that:- Following the decision in DIT (International Tax.) Vs. Bank of America [2014 (12) TMI 551 - BOMBAY HIGH COURT] - the assessee bank received interest on refund of taxes paid - It also paid interest on the taxes which were payable - The assessee sought to set off the interest paid against the interest received and offered the net interest received to tax - assessee claimed that this was business expenditure and this should have been allowed - the amount of interest paid by the assessee should have been allowed to be set off against the interest deposited with the Department and taxed in the hands of the Assessee – Decided in favour of assessee. Disallowance of provision toward country risk - Held that:- Assessee made a provision towards country risk management as per RBI guidelines vide its Circular No.DBOD.BP.71/21.04.103/2002-03 dated 19thFebruary 2003 - The AO disallowed the claim of deduction as this was not an actual return of bed debts, but only a provision was made as per the guidelines of the RBI therefore, in view of the first proviso to section 36(1)(viia)(a) of the Act no deduction is allowable to a foreign banking company - same amount of ₹ 41 lac was disallowed for AY 2003-04 and the assessee has accepted the same, therefore, no double disallowance can be made in the year – the order of the CIT(A) is upheld – Decided against revenue. TP adjustment on account of credit risk – Held that:- As decided in assessee’s own case, no material has been product to show that this expenditure as claimed by the assessee separately is for the exclusive and dedicated work/service done by the HO to the assessee - there is no explanation by the assessee as on what basis this expenditure is charged by HO – the issue cannot be decided in the absence of complete fact as whether the Head Office has charged this expenditure on the basis of man hour or dedicated desk was assigned for this purpose exclusively for the service of the assessee - The assessee has also not filed any certificate from the auditor of the Head Office in support of this claim – thus, the order is set aside and the matter is remitted back to the AO for examination of claim of assessee – Decided in favour of revenue. Levy of penalty u/s 271(1)(c) – Held that:- The penalty has been levied against the disallowance of claim of netting of the interest received u/s 244A against the interest paid by the assessee u/s 220(2) of the Income Tax Act – as decided in quantum appeal the netting is permissible and thereby the claim of the assessee is allowed – thus, the penalty levied u/s 271(1)(c) against the said addition is not sustainable – Decided in favour of assessee.
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